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The Rise of Agricultural Biotechnology

By Dr Alexandra Birrell and Mr Andrew Sneddon, PricewaterhouseCoopers

Below is an excerpt from a PricewaterhouseCoopers publication on the Life Sciences Sector Bioforum Edition 19 (Sept – Dec 06). Download a full copy of the publication.

Investors looking for strong returns should take a sharper focus on agricultural biotechnology which, in the top global markets, is experiencing close to double digit growth.

Australia is a world leader in agricultural technology development with a historical legacy of extensive and efficient agriculture. In 2005, Australia fell one shy of the top 10 countries for hectarage of biotechnology crops sown. CSIRO, The Australian Centre for Plant Functional Genomics and a number of CRCs have secured positions on a global platform in agricultural biotechnology. This coupled with fewer hurdles to market for both plant and veterinary opportunities make it an attractive but much overlooked investment option.

Investment in agricultural biotechnology has been low, marred by a number of factors including genetic modification confused the market. This “muddying of the water”, which was a perceived problem, has been coupled with the investment community’s lack of understanding and the agricultural industry’s slowness to gain commercial skills to take the technology to market. However a closer look at the large global players and emerging agricultural biotechnology company in Australian, Europe and the US shows that investors could have a lot to gain in getting to know this sector better.

Industry Overview Agricultural biotechnology is concerned with the scientific alteration, manipulation, modification or development of organisms and plants to improve their use in agriculture (e.g. to increase yields), and to create new products and enhance existing products (e.g. to improve the nutritional value of foods or offer more eco-friendly insect control methods). The genetic modification of crops has raised concerns among the public, leading to bans on GM crops in countries including Australia. Still, the technology is showing tangible benefits and its potential to improve yields and control pests in agriculture has increased pressure on governments to overturn these bans.

In 2006, the global area planted to biotech crops continued to grow at a prolonged double-digit rate for the tenth consecutive year. The 2006 growth rate hit 13 per cent or 12 million hectares, reaching 102 million hectares. Eleven developing countries and 11 industrial countries made up the 22 countries growing biotechnology crops in 2006. In terms of hectarage, the United States, Argentina and Brazil were the largest. Australia was ranked 11th in the world. A breakdown in Biotechnology Crops is shown in figure 1. A breakdown in the traits targeted in biotechnology crops is shown in Figure 2.

Figure 1

Figure 2.

Economics benefits of agricultural biotechnologyIt is estimated that in 2005, global net economic benefits to crop farmers amounted to US$5.6 billion and the accumulated income during the 10-year period to 2005 amounted to US$27 billion1 derived from a combination of enhanced productivity and efficiency gains. More broadly, biotechnology crops have had a positive impact on the global economy and environment. The use of biotechnology crops has reduced pesticide spraying (and therefore the environmental footprint associated with pesticide) by 14 per cent2.

Global players in agricultural biotechnologyGlobal players in the agricultural biotechnology industry continue to benefit from this catapulting growth rate, while a number of emerging biotechnology companies are building capabilities in niche areas.

Key players in the agricultural biotechnology industry include:

Monsanto: The company’s double-digit growth continued during 2005 and the first quarter of 2006. Much of this growth was attributed to its seeds and genomics division. In 2005, Monsanto acquired Seminis, a seed business, and Emergent Genetics, a cotton seed company3.

Syngenta: 2005 brought sustained strong growth through its genetics and seeds operations and new products and acquisitions. November 2005 marked Syngenta’s fifth birthday4.

DuPont/Pioneer: Year-end 2005 results were disappointing in comparison to those of other agricultural biotechnology companies. However, the company has taken steps to stock its pipeline with innovative products5.

The Australian agricultural biotechnology industryIn Australia new crops must be registered with the Office of the Gene Technology Regulator and Food Standards Australia New Zealand. Protection of the intellectual property rights in Australian over plant genetic technology can be sought through Plant Patents (IPAustralia) and Plant Breeders Rights (administered under the Plant Breeders’ Rights Act 1994).

Highlighting the promise agricultural technology holds in Australia is a Melbourne company, Hexima, which has been given US$850,000 in federal funding to trial one of the world’s first fungal-resistant cotton crops in southern Queensland. So far the results have been positive with the variety showing strong resistance to disease7.

The animal biotechnology industryThe US Department of Agriculture defines animal biotechnology as the application of scientific and engineering principles to the process or production of materials by animals or aquatic species to provide goods and services8. Using genetic markers, scientists are now able to trace characteristics in animals that make these breeds more resistant to disease pathogenic bacteria and parasites. In addition, bioactive anti-bacterial compounds have been identified that serve as a substitute for using synthesised antibiotics in animals, a practice that has been criticised for contributing to the increased prevalence of drug-resistant bacteria in human infections. New generation animal vaccines have been developed using modern biotechnology techniques to prevent diseases including foot and mouth, scours, brucellosis, shipping fever, feline leukaemia and rabies.

An area of particular interest in animal biotechnology is aquaculture. Aquaculture, worth an estimated US$46 billion in 19979, produces approximately one-third of all fish and shellfish consumed by humans. As of January 2002, the US regulatory body the Food and Drug Administration (FDA) was considering petitions to allow the commercial use of transgenic salmon and trout with enhanced growth characteristics. In addition, researchers are working with transgenic catfish, carp, tilapia, striped bass, clams, oysters, shrimp and abalone.

Traits being tested in transgenic fish include:

growth rates that are three to11 times faster with more efficient feed utilisation

increased tolerance to cold water

improved disease resistance.

Every quarter, BioForum reports the Australian and US listed Biotechnology market performance. It includes quarterly and annual reporting on the changes in the PwC Australian Life Sciences Sector, the NASDAQ Life Sciences Sector and changes in the subsectors - pharmaceutical/biotechnology and medical devices.

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